Filing a Tax Extension? Here's Everything You Need to Know
Even the most organized companies may find themselves running behind as April 15th approaches. If tax information is incomplete due to missing or inaccurate data, the IRS does allow business taxpayers to request an extension. Filing an extension is relatively quick and painless, but it won't excuse a tax obligation if money is owed. As the IRS website states, "An extension of time to file is not an extension of time to pay."
Find the Correct Form
The IRS provides designated forms for filing a tax extension. Sole proprietors or self-employed individuals whose business income is reported on their individual tax form (1040) should file Form 4868 to request an extension. This form grants taxpayers an additional six months to file. Businesses, including corporations and partnerships, must complete Form 7004 which allows for a five or six month extension, depending on the business structure. Filing an extension, even if an additional five or six months aren't needed, avoids the $195 penalty assessed for late filings on business tax forms such as the 1065.
Estimate Tax Owed
If a business expects to owe taxes they must estimate the amount due to the best of their ability. Even if tax forms are not complete, most businesses should be able to reasonably calculate annual income and apply a tax rate. If required information is missing or needs to be corrected, a professional tax preparer can help with tax estimates or provide advice on what needs to be sent to the IRS.
Complete the Extension Form
The business extension Form 7004 is relatively easy to complete. First, select the corporate or partnership tax form for which an extension is needed. The estimated amount of total tax owed and the amount of payments already made must also be listed to calculate the estimated balance due which will accompany the extension request.
Sending the Extension to the IRS
If an estimated tax payment is due, a check must be mailed along with the extension request to the IRS. Extensions may also be filed electronically. If using tax software, the current year's extension forms should be available for transmittal within the program. When e-filing the extension form, an electronic fund transfer may be sent along with the form to cover the estimated tax liability.
Hold onto confirmation that the extension was mailed or e-filed. According to the Form 7004 Instructions, the IRS no longer informs filers if an extension is granted. However, if for some reason the extension request is disallowed, the filer will be notified. When the complete tax information is available, all required forms should be filed and any additional tax remitted. Also, remember that Form 7004 only applies to federal taxes. State and local tax extensions must be researched and requested separately.
Some tax filing delays are unavoidable due to external events beyond a company's control. If a tax extension is needed to finish paperwork, it should be completed before a company's original filing deadline.